RL32048 Iran: U.S. Concerns and Policy Responses

RL32048 -- Iran: U.S. Concerns and Policy Responses

Updated January 12, 2006

Kenneth Katzman
Specialist in Middle Eastern Affairs
Foreign Affairs, Defense, and Trade Division

CONTENTS

• Summary
• Political History
• Regime Stability, Human Rights, and Recent Elections
• Former President Mohammad Khatemi and the Reformists
• The Conservative Ascendancy and Election of Ahmadinejad
• Economic Factors Assisting Stability
• Prominent Dissidents
• Anti-Regime Groups: People's Mojahedin Organization of Iran (PMOI)
• Pro-Shah Activists/Exile Broadcasts
• Human Rights and Religious Freedom
• Iran's Strategic Capabilities and Weapons of Mass Destruction Programs
• Nuclear Program
• European Diplomatic Efforts/Agreement One
• November 14, 2004, Paris Agreement
• Deterioration of the Paris Agreement
• Chemical Weapons, Biological Weapons, and Missiles
• Missiles/Warheads
• Foreign Policy and Support for Terrorist Groups
• Persian Gulf States
• Iraq
• Supporting Anti-Peace Process Groups
• Lebanese Hizballah
• Central Asia and the Caspian
• Afghanistan
• Al Qaeda
• U.S. Policy Responses and Legislation
• Bush Administration Policy and Options
• Regime Change
• Congress and Regime Change: H.R. 282 and S. 333
• Engagement?
• Military Action?
• International Sanctions?
• U.S. Sanctions
• Terrorism/Foreign Aid Sanctions
• Bam Earthquake
• Proliferation Sanctions
• Counter-Narcotics
• Trade Ban
• The Iran-Libya Sanctions Act (ILSA) and Regional Oil and Gas Projects
• Travel-Related Guidance
• Status of Some U.S.-Iran Assets Disputes
• Multilateral Policies Toward Iran
• EU-Iran Trade Negotiations
• Multilateral, World Bank, and IMF Lending to Iran
• WTO Membership
• Conclusion
• Footnotes

Summary

The Bush Administration has pursued several avenues to attempt to contain or end the potential threat posed by Iran, at times pursuing limited engagement directly or through allies, and at other times leaning toward pursuing efforts to change Iran's regime. A potential international crisis is escalating over Iran's nuclear program as U.S.-supported effort by European nations and Russia to limit Iran's nuclear program have faltered. International concerns on nuclear issues and other strategic issues have been heightened by the accession of Mahmoud Ahmadinejad, a hardliner, as president. He advocates a return to many of the original principles of the Islamic revolution as set down by the late Ayatollah Ruhollah Khomeini. Some advocate military action against Iran's nuclear infrastructure, but others believe that continued diplomacy, combined with offers of economic rewards or threats of punishment, is the only viable option. Still others believe that only an outright replacement of Iran's regime would diminish the threat posed by Iran to U.S. interests. U.S. sanctions currently in effect ban or strictly limit U.S. trade, aid, and investment in Iran and penalize foreign firms that invest in Iran's energy sector, but unilateral U.S. sanctions do not appear to have materially slowed Iran's WMD programs or shaken the regime's grip on power.

Iran's nuclear program is not the only major U.S. concern on Iran. Successive administrations have pointed to the threat posed by Iran's policy in the Near East region, particularly material support to groups that use violence against the U.S.-led Middle East peace process, including Hizballah in Lebanon and the Palestinian groups Hamas and Palestinian Islamic Jihad. On the other hand, Hizballah and Hamas are moving more into the political processes of their respective societies, possibly changing the perceptions of them as terrorist movements. Some senior Al Qaeda activists are in Iran as well, although Iran claims they are "in custody." In addition, U.S. officials accuse Iran of attempting to exert its influence in Iraq by providing arms and other material assistance to armed factions, possibly including anti-U.S. Shiite Islamist factions, although most Iranian-supported factions in Iraq are supportive of the U.S.-led political transition roadmap.

Iran's human rights practices and strict limits on democracy have been consistently criticized by official U.S. and U.N. reports, particularly for Iran's suppression of political dissidents and religious and ethnic minorities. However, Iran holds elections for many senior positions, including that of president, and some believe that changing Iran's domestic policies is not central to U.S. interests.

For further information, see CRS Report RS21592, Iran's Nuclear Program: Recent Developments, by Sharon Squassoni; CRS Report RS21548(pdf), Iran's Ballistic Missile Capabilities, by Andrew Feickert; CRS Report RS22323, Iran's Influence in Iraq, by Kenneth Katzman; and CRS Report RS20871, The Iran-Libya Sanctions Act (ILSA), by Kenneth Katzman. This report will be updated as warranted by developments.

Much of the debate over U.S. policy toward Iran has centered on the nature of the current regime. Some experts believe that Iran is a threat to U.S. interests because hardliners in Iran's regime dominate and set a policy direction intended to challenge U.S. influence and allies in the region.

Political History

The United States was an ally of the late Shah of Iran, Mohammad Reza Pahlavi ("the Shah"), who ruled from 1941 until his ouster in February 1979. The Shah assumed the throne when Britain and Russia forced his father, Reza Shah Pahlavi (Reza Shah), from power because of his perceived alignment with Germany in World War II. Reza Shah had assumed power in 1921 when, as an officer in Iran's only military force, the Cossack Brigade, he launched a coup against the government of the Qajar Dynasty. He was proclaimed Shah in 1925, founding the Pahlavi dynasty.

The Shah was anti-Communist, and the United States viewed his government as a bulwark against the expansion of Soviet influence in the Persian Gulf. In 1951, he appointed a popular nationalist parliamentarian, Dr. Mohammad Mossadeq, as Prime Minister. Mossadeq was widely considered left-leaning, and the United States was wary of his policies, which included his drive for nationalization of the oil industry. Mossadeq's followers began an uprising in August 1953 when the Shah tried to dismiss Mossadeq, and the Shah fled. The Shah was restored in a CIA-supported coup that year, and Mossadeq was arrested.

The Shah tried to modernize Iran and orient it toward the West, but in so doing he also tried to limit the influence and freedoms of Iran's Shiite clergy. He exiled Ayatollah Ruhollah Khomeini in 1964 because of Khomeini's active opposition to the Shah, opposition based on the Shah's anti-clerical policies and what Khomeini alleged was the Shah's forfeiture of Iran's sovereignty to its patron, the United States.

Khomeini settled in and taught in Najaf, Iraq, before going to France in 1978, from which he stoked the Islamic revolution. Mass demonstrations and guerrilla activity by pro-Khomeini forces, allied with a broad array of anti-Shah activists, caused the Shah's government to collapse in February 1979. Khomeini returned from France and, on February 11, 1979, declared an Islamic Republic of Iran. The Islamic republic is characterized by direct participation in government by Shiite Islamic theologians, a principle known as velayat-e-faqih (rule by a supreme Islamic jurisprudent). Khomeini was strongly anti-West and particularly anti-U.S., and relations between the United States and the Islamic Republic turned hostile even before the November 4, 1979, seizure of the U.S. Embassy by pro-Khomeini radicals.

Regime Stability, Human Rights, and Recent Elections

About a decade after founding the Islamic republic, Ayatollah Ruhollah Khomeini died on June 3, 1989. Upon his death, one of his disciples, Ayatollah Ali Khamene'i, then serving as president, was selected Supreme Leader by an "Assembly of Experts" (an elected body).(1) Khamene'i had served two terms as elected president (1981-1989), but he has lacked the unquestioned spiritual and political authority of Khomeini. Recently, he has been gaining strength by using his formal powers to appoint heads of key institutions, such as the armed forces and half of the twelve-member Council of Guardians.(2) This body reviews legislation to ensure it conforms to Islamic law, and it screens election candidates. His position has been enhanced by the election as president on June 24, 2005 (second round of voting) of Mahmoud Ahmadinejad, a hardliner. Another unelected body dominated by conservatives is the Expediency Council, set up in 1988 to resolve legislative disagreements between the Majles (parliament) and the Council of Guardians.

Former President Mohammad Khatemi and the Reformists. Mohammad Khatemi, who has now been succeeded by Ahmadinejad, was first elected in May 1997, with 69% of the vote. He was re-elected in June 2001, with an even larger 77% of the vote, against nine conservative candidates. He derived key political support from reformist-oriented students, youths, and women, who have been increasingly defiant of the hardliners in their dress and other activities, although observers say there are not overt signs of political rebellion. Despite his popularity, Khatemi was always subordinate to the Supreme Leader.

Khatemi's supporters held about 70% of the 290 seats in the 2000-2004 Majles after their victory in the February 18, 2000 elections. However, pro-reform elements became disillusioned with Khatemi for his refusal to confront the hardliners. Dissatisfaction with the lack of major reform erupted in major student demonstrations in July 1999 in which four students were killed by regime security forces. On June 8, 2003, a time period marking the fourth anniversary of those riots, regime forces again suppressed pro-reform demonstrators. President Bush issued statements in support of the demonstrators, although then Secretary of State Powell said the protests represented a "family fight" within Iran.

With Khatemi constitutionally ineligible to run again in the June 2005 presidential election, reformist organizations (formal "parties" have not been approved) tried to elect a reformist in the June 2005 elections. For the first round of the presidential elections on June 17, many reformists had pinned their hopes on former science minister Mostafa Moin. He finished fifth, disappointing reformists who thought he would at least make it to the runoff.

Major reformist organizations include the following:

• The Islamic Iran Participation Front (IIPF). The most prominent and best organized pro-reform grouping, it is headed by Khatemi's brother, Mohammad Reza Khatemi, who was a deputy speaker in the 2000-2004 Majles.

• The student-led Office for Consolidation and Unity. Originally enthusiastic about Khatemi, it became critical of him for failing to challenge the hardliners.

• The Mojahedin of the Islamic Revolution organization (MIR). Composed mainly of left-leaning Iranian figures who support state control of the economy.

• The Society of Combatant Clerics. A long-time moderate clerical grouping, it is now headed by Khatemi following his departure from the presidency. A senior member is Mehdi Karrubi, who was speaker of the 2000-2004 Majles. Karrubi finished third in the June 17, 2005 first round of the presidential elections.

The Conservative Ascendancy and Election of Ahmadinejad. Iran's conservatives generally want only gradual reform but, more importantly in the view of experts, they want to keep major governing and economic institutions under the control of their faction. The conservatives, supported by Khamene'i, have been gaining strength since the February 28, 2003, municipal elections, when reformists largely boycotted and hardliners won most of the seats. They gained additional strength from the February 20, 2004, Majles elections, in which the Council of Guardians disqualified about 3,600 mostly reformist candidates, including 87 members of the current Majles, enabling the conservatives to win a majority (about 155 out of the 290 seats) on turnout of about 51%. The new Majles speaker chosen was Gholem Ali Haded-Adel. The United States, most European Union countries, and the U.S. Senate (S.Res. 304, adopted by unanimous consent on February 12, 2004) criticized this election as unfair because of the candidate limitations.

On the tide of these conservative victories, the chairman of the Expediency Council, former two-term president (1989-1997) Akbar Hashemi-Rafsanjani, regained political prominence and decided to run in the June 2005 presidential elections. He has been the patron of many Majles conservatives, although he ran for president on a pro-business, pro-reform platform. He was constitutionally permitted to run because a third term would not have been consecutive with his previous two terms as president.

Rafsanjani had several more conservative opponents, three of whom had ties to the Islamic Revolutionary Guard Corps (IRGC, see below). They included former state broadcasting head Ali Larijani; former Revolutionary Guard Air Force commander and police chief, Mohammad Baqer Qalibaf; and Tehran mayor Mahmood Ahmadinejad, who was formerly a commander in the Guard and the Basij (a volunteer paramilitary organization that enforces adherence to Islamic customs).

On May 22, 2005, the Council of Guardians, as expected, significantly narrowed the field of candidates to 6 out of the 1,014 persons who filed. (In the 2001 presidential election, the Council permitted to run 10 out of the 814 registered candidates.) At Khamene'i's request, two reformist candidates were reinstated (Moin and Mohsen Mehralizadeh). On the eve of the first round, President Bush criticized the elections as unfair because of the denial of the candidacies of "popular reformers and women who have done so much for the cause of freedom and democracy in Iran."(3)

In the June 17, 2005 first round, turnout was about 63% (29.4 million votes out of 46.7 million eligible voters). The results were as follows:

No candidate achieved a majority, forcing a second round. The first round results proved surprising because few experts foresaw the emergence of Tehran Mayor Ahmadinejad. Ahmadinejad, who is about 49, campaigned as a "man of the people," the son of a blacksmith who lives in modest circumstances, who would promote the interests of the poor and return government to the principles of the Islamic revolution during the time of Ayatollah Khomeini.

The run-off was conducted on June 24, 2005. With his momentum from the first round, Ahmadinejad won a landslide victory, receiving 61.8% to Rafsanjani's 35.7%. Turnout was 47%, less than the first round, suggesting that reformists did not turn out in large numbers to try to prevent Ahmadinejad's election. He became the first non-cleric to be president of the Islamic republic since the assassination of then president Mohammad Ali Rajai in August 1981. He took office on August 6.

On August 14, 2005, he presented for Majles confirmation a 21-member cabinet composed largely of little-known hardliners, over half of whom were his associates in the Revolutionary Guard, the Basij, or the Tehran mayoralty. However, the Majles rejected four of his appointments, mostly on the grounds of insufficient experience. The first three of his oil-minister nominees were rejected by the Majles, although his fourth nominee was approved. He has appointed the hardline Ali Larijani, one of his first round rivals, as Secretary General of the Supreme National Security Council; he serves as chief negotiator on nuclear issues. He also has named a woman as one of his vice presidents, in keeping with a practice begun by Khatemi. Ahmadinejad has made no positive overtures to the United States, and he inflamed world opinion with several statements against Israel:

• On October 26, 2005, he stated at a Tehran conference entitled "A World Without Zionism" that "Israel should be wiped off the map" and that "anybody who recognizes Israel will burn in the fire of the Islamic nations' fury." The statement was widely condemned, including in a U.N. Security Council statement and Senate and House resolutions (H.Res. 523 and S.Res. 292) passed in their respective chambers. The statement caused U.N. Secretary General Kofi Annan to delete Iran from his Middle East trip itinerary in November.

• On December 9, while in Mecca, Saudi Arabia, and then in southern Iran on December 14, he questioned the veracity of the Holocaust. In the latter case, he called it a "myth" -- and stated that Europe should create a Jewish state in Europe, not in the Middle East.

• On January 1, 2006, picking up that same theme, Ahmadinejad said that the European countries created Israel after World War II to continue the process of ridding the European continent of Jews.

Ahmadinejad's statements are emblematic of a perceived lack of foreign policy experience that prompted the Supreme Leader, in October 2005, to grant new governmental supervisory powers to Rafsanjani's Expediency Council. This move did not stop Ahmadinejad from removing about 40 senior diplomats, mostly reformist oriented, from their positions overseas, prompting direct criticism of Ahmadinejad by Rafsanjani. The dissension within the conservative camp also prompted speculation that the Supreme Leader might remove Ahmadinejad (which the leader has the power to do under the constitution); Khamene'i moved to quell that discussion with a statement of support for the new president in November 2005. Ahmadinejad has also sought to parry allegations that he was one of the holders of the 52 American hostages during November 1979-January 1981; that allegation was investigated by the Bush Administration but U.S. intelligence reportedly has determined he was not one of the hostage holders.(4) The Administration granted Ahmadinejad a visa to attend U.N. General Assembly meetings in September 2005.

Economic Factors Assisting Stability. The regime has been helped in recent years by high oil prices, which are about $60 per barrel and are powering Iran's economy to a growth rate of about 5% per year. Iran's per capita income is now over $2,000 per year, up from about $1,700 in 2002. Iran produces about 4 million barrels of oil per day (mbd) and exports about 2.6 mbd. Oil revenues account for about 20% of Iran's gross domestic product (GDP). The revenue has helped Iran build foreign exchange reserves of about $25 billion. Iran has worked its external debt down from $32 billion in 1997 to below $12 billion as of March 2005. On the other hand, Iran's leaders have not corrected economic structural imbalances, such as control of major economic sectors or markets by the quasi-statal "foundations" (bonyads), and special trading privileges for Iran's powerful bazaar merchants who form the main constituency for the Supreme Leader and other senior conservatives.